Depreciation is Allowable on Goodwill even if it was not shown in Balance Sheet: ITAT Vishakhapatnam [Read Order]

Depreciation - Taxscan

The Income Tax Appellate Tribunal (ITAT), Vishakhapatnam bench recently ruled that depreciation under section 32 of the Income Tax Act, 1961 is allowable on goodwill even if it was not shown in the balance sheet.

The Tribunal bench comprising of judicial member Shri.Durga Rao and accountant member Shri.D.S. Sunder Singh held so while dismissing the appeal of revenue against M/s Cresa Financial Services.

During the assessment proceedings the AO found that the assessee introduced an intangible asset worth Rs.3, 73, 00,000/- and claimed the depreciation of Rs.93, 25,000/-. The assessee explained it as a logo of CRESA (Central for Rural Reconstruction through Social Action) Trust obtained as intangible asset. The aforesaid amount was received on this basis, was taken over by the assessee company which is said to be goodwill.

The intellectual property right by the company from CRESA Trust and argued that the above rights were acquired by the business transfer agreement and the difference between the value of the assets and the payment was treated as goodwill and claim the depreciation.

The assessee further argued that on intellectual property rights depreciation is allowable. However AO wasn’t satisfied with the explanation given by the assessee. The AO relied on the decision of ITAT Mumbai in the case of RG Keswani V. ACIT and held that the depreciation is not allowable on goodwill. The AO observed that the Goodwill is a right in personam and the depreciation on goodwill is not allowable as per Section 32(1) (ii) of the Income Tax Act.

The AO made an argument that goodwill doesn’t belong to intangible asset also held that the goodwill obtained by the assessee is like personal service contract which is unassignable.

The aggrieved assessee filed an appeal before CIT while considering the objection raised by the AO, the CIT allowed the appeal of assessee. The CIT held that whether the intangible assets include goodwill ,there could be any goodwill in micro finance business related to un organized activity and the issue with regard to the goodwill of the entity under the same control and management, non-disclosure of the asset in the balance sheet of the society and not falling good will within the purview of section 32 for depreciation. Whether intangible asset should be eligible for depreciation or not, the intangible rights fall within the purview of sub section 32(1).

The tribunal bench comprising of judicial member Shri.Durga Rao and accountant member Shri.D.S. Sunder Singh, while upholding the order of CIT noted that the CIT relied on the judgment of Supreme Court in the case of Areva T&DD, and the coordinate bench decision in the case of SKS Micro Finance Ltd cited supra and also added that AO didn’t bring any contrary argument to this.

Therefore the ITAT observed that as difference payment made by the assessee as per the valuation report cited supra is nothing but good will and the assessee is eligible for depreciation on intangible assets acquired in the form of good will as per section 32(1) of Income Tax Act.

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